With all this talk about faster payments — and even real-time payments — you’d think spenders are most concerned with how quickly their money gets from Point A to Point B.
But, according to Western Union Business Solutions President Kerry Agiasotis, real-time payments can only go so far to help a corporate payer.
“There is all this energy going into trying to remove friction and reduce the time of a physical or electronic transfer of money,” he recently told PYMNTS. “But when you think about it — it’s funny — you’re only ever going to get as far as the final mile allows.”
There are other forces at work, he said, like regulation and financial institutions, that will dictate when money lands in the hands of a recipient outside of the control of businesses and their FinServ providers.
“There will always be those remaining actors that are going to be outside of the control of businesses,” the executive said.
With that in mind, Agiasotis pointed to other aspects of the payments innovation space that should, perhaps, be getting a bit more attention from disruptors when it comes to B2B payments.
And it all circles around information.
“If you think about the other friction points to doing trade internationally, it’s information exchange,” he said. In cross-border transactions, removing friction goes way, way beyond payment, into the data that’s connected to that payment.
For instance, businesses need to figure out how to strike reliable partnerships in overseas markets.
“Many of [our business customers] are really having to look offshore for growth as a consequence of the global economy,” Agiasotis said, adding that this trend is even higher than it was before the financial crisis. “They’re having to look at new markets abroad, and the challenges that come with that aren’t easily solved."
There are the obvious sources of information being handled by cross-border business partners, he noted, like invoices and purchase orders. But corporations must also handle data and documents that exchange more hands than they would in a domestic transaction, the executive explained.
“From a cost standpoint, there is significantly more friction doing business cross-border than there is domestically,” he stated, "from the coordination between buyer and seller, accounts payable and accounts receivable processes and being able to coordinate information flow with money flow.”
Payments And Data Become One
The type of information connected to payments can include financing, which Agiasotis said is especially common in cross-border trade for businesses to simply mitigate risks associated with working with foreign suppliers.
“These organizations use extensive financing not just for liquidity and working capital management but for counterparty management,” he said, adding that about 70 percent of international traders are involved in some sort of financing in this way.
That means not only are a buyer and supplier involved in the transaction but a financier is also in the mix — along with shippers and other logistics firms handling the transfer of goods or services.
“You’ve got all of these parties participating in, essentially, end-to-end trade, and the glue there is information and documents,” explained Agiasotis. “And the document flow between all of these parties can take days, if not weeks.”
So, while some payments companies are focusing on shaving hours off of the transfer of funds, there is also time to be shaved off of this exchange of information, too.
Exposure To Risk
Perhaps one of the broadest aspects of cross-border trade that depends on information is foreign exchange risk mitigation.
For instance, while invoices are connected to cross-border B2B payments, that exchange of data doesn’t always result in the understanding of that data. According to Agiasotis, there is a surprising number of businesses that are in the dark about the true value of their B2B transactions due to FX.
“You’d be floored at the response,” he said when asked about whether companies understand this area of their operations.
“We did our own study, and 78 percent of respondents around the question of knowing the true value of their payable or receivable at the time of making the payment — they didn’t know the true value if it was a foreign currency,” stated Agiasotis.
The implications of not understanding a foreign invoice in terms relatable to local currency are far-reaching, the executive added.
“There could be a significant differential in what you thought you needed to make the payment and cash management and what you actually need from a cash management point,” he said. “Foreign exchange is a real blind spot in terms of knowing how much cash you’re going to need and when you’re going to need it.”
Real-time payments aren’t going to help a business much if it is unclear about the actual value of that cross-border payment.
Agiasotis noted that much of the understanding about the importance of cross-border information transfer is the result of discussions with Western Union Business Solutions clients.
“Our customers are looking to talk to us beyond payments,” he said. “Their challenges go far beyond that. A lot of innovation is trying to take out friction in payments, and the things they’re concerned with go far beyond that.”
It’s this insight that led the company to launch WU EDGE, its online platform to connect these businesses doing international trade. Over the portal, companies can not only make payments but Agiasotis pointed out the ability for EDGE to ease the collaborative efforts of its participants, including translating a foreign invoice into local currency and increasing transparency of supplier and FX risk exposure.
According to the executive, businesses today are, of course, concerned about the bottom line — the cost and time it takes for a payment to land at its intended destination. But the top line is also just as important, and that means accessing information to enter a new market, secure trusted business partnerships and pay foreign suppliers with a clear vision of cash position.
“Businesses looking to grow internationally have to worry about their top line,” Agiasotis said. “How they find new trading partners, customers abroad, how to do that when you haven’t had experience there, what you need to actually be even competitive. That’s always a challenge when you go from one country to the next.”